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FINANCIAL ANALYSIS SUMMARY
JUNE 2018
2 Financial Analysis Summary
Table of Contents
1. FINANCIAL ANALYSIS SUMMARY UPDATE .......................................................................................... 3
2. MAJOR DEVELOPMENTS RELATING TO THE ISSUER ........................................................................... 3
2.1 Directors and Employees .............................................................................................................. 3
3. PERFORMANCE AND FINANCIAL POSITION OF THE ISSUER ............................................................... 4
3.1 Statement of Comprehensive Income .......................................................................................... 4
3.2 Statement of Cash Flows............................................................................................................... 6
3.3 Statement of Financial Position .................................................................................................... 7
3.4 Evaluation of Performance and Financial Position ....................................................................... 8
4. UPDATE RELATING TO THE GROUP ................................................................................................... 11
4.1 Major Assets................................................................................................................................ 11
4.1.1 Piazzetta Business Plaza ....................................................................................................... 11
4.1.2 GEM Holdings Ltd ................................................................................................................. 11
4.2 Organisational Structure of the Group ....................................................................................... 11
5. PERFORMANCE AND FINANCIAL POSITION OF THE GROUP ............................................................. 12
5.1 Statements of Comprehensive Income ....................................................................................... 13
5.2 Statements of Cash Flows ........................................................................................................... 16
5.3 Statements of Financial Position ................................................................................................. 17
5.4 Evaluation of Performance and Financial Position ..................................................................... 19
5.5 Overview of Projections for the Group ....................................................................................... 21
5.5.1 Core Operations ................................................................................................................... 21
5.5.2 Capital Investment ............................................................................................................... 22
6. COMPARABLES .................................................................................................................................. 23
7. GLOSSARY ......................................................................................................................................... 24
Financial Analysis Summary 3
1. FINANCIAL ANALYSIS SUMMARY UPDATE
In accordance with requirements of the Listing Authority Policies, the purpose of this Financial
Analysis Summary Update June 2018 (“FAS Update June 2018”) is to provide an update on the
performance and on the financial position of Gasan Finance Company p.l.c. (“the Issuer” or “GFC”)
and, where relevant, of Gasan Group Limited (“the Group” or “the Parent”).
Please refer to the Financial Analysis Summary October 2013 (“FAS Report 2013”) sections 1, 2, and
3 for information relating to the overviews of the Issuer and of the Group, in addition to information
on the issue of the €25 million 4.9% bonds due 2019/21 (“Bond 2019/21”). Additionally, please refer
to Section 2 and Section 4 for an update on relevant developments relating to the content in these
sections.
Additionally, please refer to FAS Report 2013, together with the FAS updates relating to 2014 to
2017 for detailed reviews of the performance and financial position of the Issuer and the Group for the
periods prior to 2018.
2. MAJOR DEVELOPMENTS RELATING TO THE ISSUER
2.1 Directors and Employees
At the date of this FAS Update June 2018, the Board is composed of the following Directors:
Name of Director Function
Mr. Joseph Gasan Chairman
Mr. Mark Gasan Executive Director
Mr. Ian Sultana Managing Director
Mr. Anthony R. Curmi
Mr. Michael Soler
Non-Executive Director
Non-Executive Director
Mr. Etienne Borg Cardona Non-Executive Director
Publio sive Danny Rosso Non-Executive Director
It is noted that during 2018, the following changes took place:
Mr Roderick E.D. Chalmers resigned from the role of director on the 1st January 2018, with
Mr Publio sive Danny Rosso being appointed as a director on the same date.
4 Financial Analysis Summary
Following the resignation of Roderick E. D. Chalmers from director, and the appointment of
Publio sive Danny Russo in his stead on 1 January 2018, the Audit Committee is currently
composed of the following non-executive directors:
o Publio sive Danny Rosso (Chairman)
o Michael Soler
o Etienne Borg Cardona
3. PERFORMANCE AND FINANCIAL POSITION OF THE ISSUER
This document makes reference to the financial statements of the Issuer for the financial years ending
31st December 2015, 31
st December 2016 and 31
st December 2017. The financial statements referred
to have been audited by PwC. This section also includes references to management’s forecast
financial statements for 2018. These forecasts and projections are based on certain assumptions.
Events and circumstances may differ from expectations, and therefore actual results may vary
considerably from the projections.
3.1 Statement of Comprehensive Income Gasan Finance Company p.l.c. 2015 2016 2017 2017 2018
Statement of comprehensive income ( €000) - 31 December Actual Actual
Forecast - FAS
Update June 2017 Actual Forecast
Revenue 3,857 3,454 3,315 3,586 8% 3,869
Interest Payable (1,380) (1,252) (1,225) (1,224) - (1,220)
Gross Profit 2,477 2,202 2,090 2,363 13% 2,649
Administrative expenses (357) (328) (355) (347) -2% (349)
Changes in fair value of investment property - - - 851 - -
Profit before tax 2,121 1,874 1,735 2,867 65% 2,300
Tax credit / (expense) 53 (542) (517) (632) 22% (564)
Profit for the year - total comprehensive income 2,174 1,332 1,218 2,236 84% 1,736
Source: Gasan Finance Company p.l.c annual reports; Management information
Variance
from
forecast
Financial Analysis Summary 5
Total revenue for the year ended 31st December 2017 increased by 4% to €3.6 million when compared
to the previous year. Both rental income and interest receivable each amounted to €1.8 million in
2017. Rental income increased as a result of higher lease rates attained from new tenants as well as
from annual increments on existing leases. In 2016, hire purchase bills were translated into an
intercompany loan to Gasan Enterprises Limited, the original holder of the bills, and as a result no
income was generated from these bills in 2016 and 2017. Interest payable decreased to €1.2 million
(2016: €1.3 million) due to the full effect of the bank loan repayment in 2016, whilst administrative
expenses amounted to €0.3 million, in line with the previous year.
Total revenue is expected to increase to €3.9 million in 2018. Rental income from Gasan Centre is
expected to remain relatively unchanged in 2018. The rental income from Il-Piazzetta properties is
based on contracts currently in place, which are expected to increase as a result of higher rates
obtained from new tenants together with the annual increments on existing lease contracts. Total
interest receivable is expected to increase from €1.8 million to €1.9 million, reflecting a higher
outstanding balance of advances to other Group companies.
Profit before tax amounted to €2.9 million, a 53% increase over the previous year. The significant
improvement in profitability is largely due to a gain from the revaluation of investment property of
€0.9 million in 2017 (2016: nil). Management notes that the fair value adjustment relates to ‘Il-
Piazzetta’ units and is based on the rental income streams derived from these units and the applicable
capitalisation rates taken on properties in similar locations.
Profit before tax is expected to amount to €2.3 million in 2018, a decrease of €0.6 million from the
previous year. However, when excluding the fair value movement in 2017, profitability is expected to
improve by 14%, in view of the increase in leasing and interest income.
The only substantial variance between actual performance during 2017 and forecasts presented in the
FAS Update June 2017 relates to the changes in fair value of investment property, which was not
included in the forecasts presented.
-
500
1,000
1,500
2,000
2015 2016 2017
Gasan Finance Company p.l.c. - Revenue Breakdown (€000)
Rental income from investment property Interest income
Other income Bills interest incomeSource: Gasan Finance Company p.l.c annual reports; Management information; Curmi & Partners Ltd.
6 Financial Analysis Summary
3.2 Statement of Cash Flows
The cash flow statement for the Issuer reflects its nature as a financing vehicle. Cash flows mainly
consist of flows into and out of the company that relate to the raising, servicing, and repayment of
debt, in addition to the core income derived from rent and interest receivable on advances to other
Group companies.
There was no overall cash flow movement during 2017. Net cash generated from operating activities
and net cash used in both investing and financing activities amounted to €0.2 million. In 2017, the
Issuer re-purchased €0.1 million of the Bond 2019/21 issue, which it subsequently cancelled. During
2018, net cash from operating activities is expected to amount to €0.1 million.
With respect to the Statement of Cash Flows, the variances between the forecasts presented in the
FAS Update June 2017 and the actual results are not considered material.
Gasan Finance Company p.l.c. 2015 2016 2017 2017 2018
Statement of cash flows (€000) - 31 December Actual Actual
Forecast - FAS
Update June 2017 Actual
Variance
from
forecast Forecast
Net cash (used in) / generated from operating activities 769 4,691 128 187 46% 70
Net cash (used in) / generated from investing activities - (72) (128) (92) -28% (70)
Net cash (used in) / generated from financing activities (769) (4,619) - (95) - -
Net movement in cash and cash equivalents - - - - -
Cash and cash equivalents at beginning of year - - - - -
Cash and cash equivalents at end of year - - - - -
Source: Gasan Finance Company p.l.c annual reports; Management information
Financial Analysis Summary 7
3.3 Statement of Financial Position
Total assets as at 31st December 2017 amounted to €58.6 million, an increase of €2.2 million from the
previous year. This is mainly a result of a gain in fair value of investment property of €0.9 million and
a €2.0 million increase in loans to the immediate parent company.
Borrowings amounted to €24.7 million (2016: €24.8 million) as at 31st December 2017, reflecting the
Bond 2019/21 issue, of which €0.1 million was re-purchased and subsequently cancelled by the
Issuer. Total equity increased by €2.2 million to €30.2 million. This reflects the impact of the
revaluation of investment property in other reserves.
Total assets as at 31st December 2018 are expected to increase by €1.9 million, mainly as a result of
an increase in intercompany receivables, which are also reflected in the higher accumulated interest
receivable for the year.
Gasan Finance Company p.l.c. 2015 2016 2017 2017 2018
Statement of financial position (€000) - 31 December Actual Actual
Forecast - FAS
Update June 2017 Actual
Variance
from
forecast Forecast
ASSETS
Non-current assets
Investment property 33,400 33,472 33,600 34,415 2% 34,485
Total non-current assets 33,400 33,472 33,600 34,415 2% 34,485
Current assets
Trade and other receivables 26,233 22,874 23,830 24,178 1% 25,984
Cash and cash equivalents - - - - - -
Total current assets 26,233 22,874 23,830 24,178 1% 25,984
Total assets 59,633 56,346 57,430 58,593 2% 60,469
EQUITY AND LIABILITIES
Capital and reserves
Share capital 3,500 3,500 3,500 3,500 - 3,500
Other reserves 14,610 14,618 14,631 15,563 6% 15,556
Retained earnings 8,473 9,798 11,016 11,088 1% 12,824
Total Equity 26,584 27,915 29,147 30,151 3% 31,880
Non-current liabilities
Deferred tax liabilities 3,110 3,089 3,105 3,155 2% 3,110
Borrowings 28,527 24,758 24,678 24,744 - 24,796
Total non-current liabilities 31,638 27,847 27,783 27,899 - 27,906
Current liabilities
Trade and other payables 422 535 500 528 6% 683
Current tax liabilities 221 49 - 15 - -
Borrowings 769 - - - - -
Total current liabilities 1,412 584 500 543 9% 683
Total liabilities 33,049 28,431 28,283 28,442 1% 28,589
Total equity and liabilities 59,633 56,346 57,430 58,593 2% 60,469
Source: Gasan Finance Company p.l.c annual reports; Management information
8 Financial Analysis Summary
Total equity is projected to increase by €1.7 million, driven by an increase in retained earnings. The
only substantial variance between the actual Statement of Financial Position during 2017 and
forecasts presented in the FAS Update June 2017 relates to the impact from the revaluation of
investment property, which resulted in an increase in investment property to €34.4 million and other
reserves to €15.6 million.
3.4 Evaluation of Performance and Financial Position
The profitability ratios for the Company generally display a considerable level of stability, reflecting
its role as a holder of investment properties and the finance vehicle of the Group. Rental and interest
income, in addition to fixed interest payable on borrowings, drive operations and profits. In 2017, the
net profit margin and return on equity diverged from the trend by increasing substantially due to the
revaluation gain on investment property.
Margins improved in 2017. Both gross profit and operating profit margins, which do not take into
account the gain in fair value of investment property, increased by 2%. This improvement was driven
by the growth in rental and interest income. Margins are expected to improve further in 2018 and are
also expected to be driven by an increase in rental and interest income generated during the year.
Return on Capital Employed (“ROCE”) and Return on Assets (“ROA”) are estimated on the basis of
operating profit. In line with above mentioned trends and the improvement in profitability from the
Gasan Finance Company p.l.c. 2015 2016 2017 2018
Profitability Ratios - 31 December Actual Actual Actual Forecast
Gross Profit Margin 64% 64% 66% 68%
(Gross Profit / Revenue)
Operating Profit Margin 55% 54% 56% 59%
(Operating Profit / Revenue)
Interest Coverage 2.5x 2.5x 2.6x 2.9x
(Operating Profit adding back interest payable
/ Interest Payable)
Return on Assets 3.6% 3.2% 3.5% 3.9%
(Operating Profit / Average Total Assets)
Return on Capital Employed 3.7% 3.3% 3.5% 3.9%
(Operating Profit / Average Capital Employed)
Net Profit Margin 56% 39% 62% 45%
(Profit for the year / Revenue)
Return on Equity 8.5% 4.9% 7.7% 5.6%
(Profit for the year / Average Total Equity)
Source: Gasan Finance Company p.l.c annual reports; Management information; Curmi & Partners Ltd.
Financial Analysis Summary 9
gain in fair value of investment property, ROCE and ROA increased in 2017 and are expected to
increase further in 2018, reflecting improvements in operating profit.
Interest coverage would typically be calculated as the ratio of Earnings before Interest, Taxes,
Depreciation and Amortization (“EBITDA”) or Earnings before Interest, Taxes (“EBIT”) to net
finance costs. In the case of the Issuer, the core revenue of the Company consists of rental income and
interest earned on financial assets. Therefore, in order to estimate the ability to service the
borrowings, interest coverage is estimated as the ratio of this financial income (after adjusting for
administrative expenses) to interest payable. Historically, the Issuer has been consistent in achieving a
comfortable ratio in excess of 2x, with interest coverage rising slightly to 2.6x in 2017 and expected
to improve to 2.9x in 2018.
Group balances are all recognised as current assets in the statement of financial position. Additionally,
the Issuer does not engage in trade operations and thus does not incur substantial trade-related short
term liabilities. Therefore, liquidity ratios are historically higher than what would be considered
typical for an operating company. During 2017, the current ratio increased to 44.5x, primarily due to
the increase in intercompany receivables.
1.8x
2.0x
2.3x
2.5x
2.8x
3.0x
2015 2016 2017 2018 Forecast
Gasan Finance Company p.l.c. - Interest Coverage Ratio
Source: Gasan Finance Company p.l.c annual reports; Management information; Curmi & Partners Ltd.
10 Financial Analysis Summary
Gearing continued to decrease during 2017, reflecting the repayment of bank debt and an increase in
equity. In 2018, gearing is expected to decrease further due to a forecasted increase in retained
earnings.
Gasan Finance Company p.l.c. 2015 2016 2017 2018
Statement of financial position ratios - 31 December Actual Actual Actual Forecast
Current Ratio 18.6x 39.2x 44.5x 38.0x
(Current Assets / Current Liabilities)
Quick Ratio 18.6x 39.2x 44.5x 38.0x
(Current Assets less Inventories / Current Liabilities)
Gearing Ratio (1) 52.4% 47.0% 45.1% 43.8%
(Borrowings / {Total Equity + Borrowings})
Gearing Ratio (2) 1.1x 0.9x 0.8x 0.8x
(Borrowings / Total Equity)
Source: Gasan Finance Company p.l.c annual reports; Management information; Curmi & Partners Ltd.
30%
40%
50%
60%
2015 2016 2017 2018 Forecast
Gasan Finance Company p.l.c. - Gearing Ratio
Source: Gasan Finance Company p.l.c annual reports; Management information; Curmi & Partners Ltd.
Financial Analysis Summary 11
4. UPDATE RELATING TO THE GROUP
The Issuer’s primary role is that of raising funds from capital markets to finance the Group’s
operations. The Issuer is owned by Gasan Enterprises Limited, which is in turn owned by Gasan
Group Limited.
A core part of the Company’s operations is centred around loan agreements with Gasan Enterprises
Limited and Gasan Group Limited. The Issuer relies on interest receivable on loans to these group
companies and on rent receivable from Gasan Properties Limited.
Due to the above mentioned reliance it is relevant to provide an overview of the performance and
financial position of the Group.
4.1 Major Assets
4.1.1 Piazzetta Business Plaza
GFC currently owns a number of units within the building known as ‘Il-Piazzetta’ in Sliema. The land
adjacent to this building is currently being developed by another company within the Group. The
development of the Piazzetta Business Plaza commenced in April 2016 and is expected to be
completed in 2019. In 2016 and 2017 the Group acquired two properties adjoining the development,
increasing the net foot print of the project. The development will consist of over 250 parkings spaces,
700 square metres of retail space on the Piazza, 8,000 square metres of net office space, two kiosks
and an open landscaped Piazza.
During 2017, this site was revalued by an additional €8 million. The Group’s valuation exercise takes
into account the current market lease rates and the applicable capitalisation rates taken on properties
in similair locations.
4.1.2 GEM Holdings Ltd
During 2017, the Group increased its investment in the energy sector through its associate company
GEM Holdings Limited (“GEM”) which was financed through a combination of internally generated
funds and a new bank facility. The Group currently holds a 35.17% stake in GEM.
4.2 Organisational Structure of the Group
The Group is engaged in the operation of motor vehicle dealerships and related services, the provision
of insurance services, the holding of property for development and leasing as well as the provision of
building services and contracting, including the installation of lifts and HVAC. In addition, the Group
12 Financial Analysis Summary
holds a number of investments in companies operating in various industries including property
development and energy. Gasan Group Limited is, directly or indirectly, the holder of all the
investments in subsidiaries and associates forming part of the Gasan Group. All the subsidiaries
(50%+ of the voting rights) are consolidated within Gasan Group Limited
Below is Gasan Group Limited’s updated organisational structure, reflecting Gasan Group Limited’s
subsidiaries and ongoing investments in the principal associate companies.
5. PERFORMANCE AND FINANCIAL POSITION OF THE GROUP
This document makes reference to the financial statements of the Group for the financial years ending
31st December 2015, and 31
st December 2016, and 31
st December 2017. The financial statements
referred to have been audited by PwC. This section also includes references to group projections
prepared by management. These projections are based on certain assumptions. Events and
circumstances may differ from expectations, and therefore actual results may vary considerably from
the projections.
Financial Analysis Summary 13
5.1 Statements of Comprehensive Income
Gasan Group Limited 2015 2016 2017
Statements of comprehensive income ( €000) - 31 December Actual Actual Actual
Revenue 76,847 60,962 53,052
Cost of sales (68,472) (57,245) (46,631)
8,375 3,716 6,420
Contribution from insurance operations 2,969 6,096 7,123
Gross Profit 11,344 9,813 13,543
Distribution costs (275) (273) (280)
Administrative expenses (4,322) (4,176) (3,863)
Other income - net 378 1,078 1,148
Income from investment property 4,600 522 9,478
Operating Profit 11,725 6,963 20,026
Investment and other related income 1,899 2,479 1,922
Profit on sale of available-for-sale financial assets - 5,765 -
Finance income 685 712 1,140
Finance costs (2,459) (2,155) (2,233)
Profit before impairment and before share of
results of associates 11,850 13,764 20,855
Share of results of associates 5,280 862 (474)
Profit before tax 17,130 14,626 20,381
Tax expense (2,552) (5,299) (4,991)
Profit for the year 14,577 9,327 15,390
Other comprehensive income, net of tax 4,159 (1,168) (253)
Total comprehensive income for the year 18,736 8,159 15,137
Total comprehensive income attributable to:
Owners of the Company 17,692 5,555 12,113
Non-controlling interests 1,044 2,604 3,024
Total comprehensive income 18,736 8,159 15,137
Source: Gasan Group Limited annual reports
14 Financial Analysis Summary
The Group’s overall profitability improved over the previous year, despite a 13% decrease in revenue
in 2017. Revenue decreased across the three main operating segments, with the relative contribution
of the core automotive and marine (“Auto”) business decreasing for the second consecutive year to
68% of total revenues excluding insurance (2016: 70%). The improvement in profitability and
margins was mainly driven by lower costs, particularly lower contract costs incurred throughout the
year as well as a higher contribution from the insurance business.
In the Auto sector, revenue decreased by 15% to €36.0 million (2016: €42.6 million), due to the fact
that 2015 and 2016 were generally considered as exceptional years. The Auto sector is a highly
competitive market and is faced by increased competition from the importation of used cars, which
ultimately has an effect on turnover. Despite the increased competitive pressure, management notes
that this core business remains healthy, driven by strong brands and growth particularly in commercial
vehicles.
The Building Services segment generated €15.4 million in revenue, reflecting a decrease of 8% in
2017. Management noted that the decrease in revenue was mainly a result of a restructuring exercise
initiated in 2017 which saw a complete change in management and a more selective approach to
business, with a focus on facilities management and core competence. Furthermore, revenue
recognition in certain divisions is influenced by the percentage of completion of the underlying
project. Given that some projects undertaken span over more than one financial year, the full revenue
recognition of a project may be prolonged. The remodelling of this operating segment gave tangible
results, with improvements in profitability in 2017 over the previous year.
The overall contribution from the insurance sector amounted to €7.1 million (2016: €6.1 million),
with the improvement driven primarily by an increase in net premiums written. Management
highlights that the generally conservative policies adopted by the Group are reflected in the stable and
profitable contribution over the years.
-
10,000
20,000
30,000
40,000
50,000
60,000
2015 2016 2017
Gasan Group Limited - Revenue Breakdown excluding Insurance (€000)
Automotive and marine Building services and contracting Property rentals & other
Source: Gasan Group Limited annual reports
Financial Analysis Summary 15
Operating profit excluding the impact from changes in fair value of investment property amounted to
€10.5 million (2016: €6.4 million). The estimate for EBITDA, which also excludes movement related
to property valuations increased by 35% to €9.0 million (2016: €6.7 million), reflecting lower cost of
sales and a higher contribution from insurance operations.
The Group revalues its property on an annual basis. The impact of property revaluations was higher
than in recent years, amounting to €9.2 million in 2017 (2016: €0.3 million). The gain on the change
in fair value of investment property is mainly related to the ongoing development of the Piazzetta
Business Plaza which is expected to be completed in Q4 2019. Management notes that it adopts a
prudent approach with respect to property valuations and the basis for this valuation takes into
consideration the current lease rates and the capitalisation rates applicable to office space in similar
locations. The Group regularly assesses the value of its holdings and accounts for movements in fair
values in accordance with International Financial Reporting Standards.
Profit before tax amounted to €20.4 million (2016: €14.6 million). As opposed to previous years,
profit before tax was not largely impacted by investment and other related income and impairments to
available-for-sale investments. In 2016, the Group made a profit of €5.8 million from the sale of
available-for-sale financial assets, mainly relating to the disposal of the holding in Melita Limited.
The share of results of associates for 2017 amounted to a loss of €0.5 million (2016: profit of €0.9
million).
It may also be relevant to consider the total comprehensive income, along with the profit for the year,
to obtain a better perspective on the performance and profitability of the Group. The Group’s other
comprehensive income improved from the previous year, from a loss of €1.2 million to a loss of €0.3
million. The loss in 2016 primarily reflected the release of the fair value gain on disposal amounting
to €5 million. The Group generated €15.1 million total comprehensive income for the year ended 31st
December 2017, compared to €8.1 million in 2016.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2015 2016 2017
Gasan Group Limited - Insurance Contribution (€000)
Source: Gasan Group Limited annual reports
16 Financial Analysis Summary
5.2 Statements of Cash Flows
During 2017, net cash generated from operating activities increased by €4.2 million to €8.2 million,
with the movement driven by the increase in cash from operations, reflecting the Group’s improved
profitability.
Net cash used in investing activities amounted to €15.5 million, compared to an inflow of €4.3 million
in the previous year. The outflow was driven by additions to investment of associates which primarily
related to the investment in GEM, an increase in insurance investments together with a decrease in
proceeds from disposal of assets compared to the previous year.
With respect to financing activities, there was a net inflow of €1.9 million compared to an outflow of
€10.6 million the previous year. This amount primarily reflects an increase in borrowings of €6.0
million, offset by dividend payments of €4.0 million. Management notes that the level of dividend
payout is dependent on the level of profit generation plus the reserves, in addition to the Group’s
working capital requirements and available investment opportunities.
The overall negative movement in cash and cash equivalents amounted to €5.4 million, compared to
€2.2 million in 2016. The balance of cash at bank and in hand amounted to €6.2 million with short-
term bank overdrafts amounting to €24.7 million, for an aggregate short term net debt position of
€18.5 million. Management notes that overdraft financing is mostly related to the Auto business,
whereby the nature of operations typically requires flexibility in terms of funding requirements.
Gasan Group Limited 2015 2016 2017
Statement of cash flows ( €000) - 31 December Actual Actual Actual
Net cash generated from operating activities 12,496 4,170 8,169
Net cash (used in) / generated from investing activities (5,893) 4,250 (15,511)
Net cash (used in) / generated from financing activities (4,693) (10,601) 1,932
Net movement in cash and cash equivalents 1,910 (2,180) (5,410)
Cash and cash equivalents at beginning of year (12,812) (10,902) (13,082)
Cash and cash equivalents at end of year (10,902) (13,082) (18,492)
Source: Gasan Group Limited annual reports
Financial Analysis Summary 17
5.3 Statements of Financial Position
Total assets of the Group as at 31st December 2017 amounted to €233.5 million, an increase of €23.5
million over the previous year. The major movements in assets included an increase in investment
property which primarily reflects the revaluation of the Piazzetta development, an increase in
investments in associates and an increase within the insurance business.
Gasan Group Limited 2015 2016 2017
Statements of financial position ( €000) - 31 December Actual Actual Actual
ASSETS
Non-current assets
Intangible assets 648 648 648
Property, plant and equipment 23,863 24,653 24,536
Investment property 36,395 37,225 45,581
Investment in associates 25,985 32,182 44,146
Other investments 21,186 8,722 8,694
108,077 103,430 123,606
Other non-current assets
Deferred tax 3,218 1,091 564
Trade and other receivables 7,034 8,191 8,331
10,251 9,283 8,895
Insurance company
Investments 24,004 28,076 33,777
Investment property 4,657 7,813 10,515
Cash and cash equivalents 9,292 9,440 5,639
37,953 45,330 49,931
Total non-current assets 156,280 158,042 182,432
Reinsurers' share of technical provisions 1,903 1,097 1,361
Current assets
Inventories 15,577 13,833 14,827
Property held for resale 3,670 3,670 3,500
Trade and other receivables 26,323 27,619 25,076
Current tax assets 2,991 2,227 2,319
Deferred acquisition costs 2,896 3,073 3,401
Cash and cash equivalents 1,012 464 573
Total current assets 52,468 50,886 49,697
Total assets 210,651 210,025 233,491
Source: Gasan Group Limited annual reports
18 Financial Analysis Summary
Total borrowings as at 31st December 2017 amounted to €55.4 million, comprising of the bond issue
of €24.7 million, bank overdrafts of €24.7 million and a bank loan of €6 million. The Group’s bank
overdrafts and loans are secured by general and special hypothecs over the Group’s assets (excluding
the assets of the Issuer) and a pledge of €2.1 million on insurance investments. Trade and other
payables amounted to €20.2 million, basically unchanged from the previous year.
Total equity as at 31st December 2017 amounted to €113.6 million (2016: €102.5 million). The
increase in total equity was primarily driven by an increase in other reserves reflecting the uplift in
valuation of investment property.
Gasan Group Limited 2015 2016 2017
Statements of financial position ( €000) - 31 December Actual Actual Actual
EQUITY AND LIABILITIES
Capital and reserves attributable to owners
Share capital 1,327 1,327 1,327
Revaluation reserve 13,628 16,038 16,537
Other reserves 25,166 22,404 28,659
Retained earnings 48,771 51,170 53,521
88,891 90,939 100,044
Non-controlling interests 10,337 11,545 13,604
Total equity 99,229 102,484 113,648
Non-current liabilities
Deferred tax 8,251 7,061 8,124
Borrowings 29,327 24,758 30,744
Total non-current liabilities 37,578 31,819 38,868
Insurance company
Technical provisions 30,934 31,356 35,546
Current liabilities
Trade and other payables 19,410 20,007 20,221
Borrowings 22,262 22,994 24,704
Current tax liabilities 1,240 1,364 504
Total current liabilities 42,911 44,365 45,429
Total liabilities 111,423 107,540 119,843
Total equity and liabilities 210,651 210,025 233,491
Source: Gasan Group Limited annual reports
Financial Analysis Summary 19
5.4 Evaluation of Performance and Financial Position
The Group’s performance during 2017 was positive, as reflected through profitability and margins,
albeit with a drop in revenue across the Group’s main segments. The contribution from the insurance
segment improved over 2016, which was considered a strong year. Profitability in Building Services
improved considerably in 2017 as a consequence of the restructuring exercise undertaken by
management. Additionally, the Group’s bottom line was positively impacted by valuation gains on
investment properties.
Gasan Group Limited 2015 2016 2017
Profitability Ratios - 31 December Actual Actual Actual
Gross Profit Margin 14.8% 16.1% 25.5%
(Gross Profit / Revenue)
Operating Profit Margin(a) 15.3% 11.4% 37.7%
(Operating Profit / Revenue)
Operating Profit Margin(b) 9.3% 10.9% 20.5%
(Operating Profit excluding changes in fair value
of investment property / Revenue)
EBITDA margin 16.0% 11.0% 16.9%
(EBITDA / Revenue)
Interest Coverage 6.9x 4.6x 8.2x
(EBITDA / Net Finance Costs)
Return on Assets(a) 5.9% 3.3% 9.0%
(Operating Profit / Average Total Assets)
Return on Assets(b) 3.6% 3.2% 4.9%
(Operating Profit excluding changes in fair value
of investment property / Average Total Assets)
Return on Capital Employed(a) 7.5% 4.2% 11.4%
(Operating Profit / Average Capital Employed)
Return on Capital Employed(b) 4.6% 4.0% 6.2%
(Operating Profit excluding changes in fair value
of investment property / Average Capital Employed)
Net Profit Margin 19.0% 15.3% 29.0%
(Profit for the year / Revenue)
Return on Equity 15.9% 9.2% 14.2%
(Profit for the year /Average Total Equity)
Source: Gasan Group Limited annual reports; Curmi & Partners Ltd.
20 Financial Analysis Summary
The Group’s improvement in its core operating performance is reflected in the substantial increase in
gross profit, operating profit and EBITDA margins. The EBITDA margin, which excludes
depreciation and amortisation items in addition to any valuation gains and impairments, improved
significantly from 11.0% in 2016 to 16.9% in 2017. The Group’s operating profit margin also
increased over the previous year. It is relevant to note that the Group’s margins have also improved
over 2015 levels, which was considered an exceptional year.
The increased profitability in 2017 is also reflected in the higher ROCE and ROA ratios, despite the
increase in the asset base. The Group’s interest coverage ratio also improved significantly, increasing
to 8.2x from 4.6x.
Free cash flow, hereby estimated by adjusting EBITDA for capital expenditures, changes in trade
working capital (including inventories, trade and other receivables, trade and other payables, and
excluding movements related to borrowings), and taxes paid, was positive for the period 2014-2016,
however this trend was halted in 2017. During 2017, free cash flow usage amounted to €9.0 million
compared to an amount of €10.2 million that was generated in 2016. The negative free cash flow
mainly reflects the cash outflow used in investing activities of €15.5 million which were primarily
used for investments in associates. Management noted that following a period of divestments and
consolidation of the core operations, the Group is now in an investment phase, thus the increase in
cash used in investment activities is to be expected. Net tax paid in 2017 also increased from €1.8
million to €4.2 million.
Net leverage, expressed as net debt to EBITDA, decreased. This reflects the stronger performance in
terms of EBITDA generated relative to debt levels. The increase in EBITDA compensated for the
higher level of net debt, attributable to an increase in borrowings. The Group’s level of gearing has
been relatively low, increasing marginally in 2017 which also reflects the increase in borrowings.
Gasan Group Limited 2015 2016 2017
Statements of Financial Position Ratios - 31 December Actual Actual Actual
Current Ratio 1.2x 1.1x 1.1x
(Current Assets / Current Liabilities)
Quick Ratio 0.9x 0.8x 0.8x
(Current Assets less Inventories / Current Liabilities)
Gearing Ratio (1) 34.2% 31.8% 32.8%
(Borrowings / {Total Equity + Borrowings})
Gearing Ratio (2) 0.5x 0.5x 0.5x
(Borrowings / Total Equity)
Net Leverage Ratio 4.1x 7.1x 6.1x
(Net Borrowings / EBITDA)
Free Cash Flow to Debt 6.5% 21.3% -16.2%
(Free cash flow / Borrowings)
Source: Gasan Group Limited annual reports; Curmi & Partners Ltd.
Financial Analysis Summary 21
5.5 Overview of Projections for the Group
5.5.1 Core Operations
An overview is hereby provided of the major developments in terms of operating, investing, and
financing activities that could have a relevant impact on the overall cash flows of the Group.
Core activities from the Auto and Building Services businesses are expected to continue to be major
contributors to the Group’s cash generation from operations. Management noted that the restructuring
exercise undertaken in Buildings Services gave tangible results in 2017 and indicated that 2018
targets are above those achieved in 2017. The Auto business is expected to continue reflecting certain
cyclical trends and increased competition, but management highlights the quality of its portfolio of
brands and the prominent presence in markets that are benefiting from particular growth. The rental
income from major property assets is expected to continue increasing at approximately 2% to 3% per
annum. The insurance segment delivered positive results in 2017 and management have noted that
although it is a volatile business, the conservative policies adopted by the Group should continue to
deliver positive contributions over the years.
From a core operations perspective, the group’s strategy that was employed in the last few years of
consolidating its four business pillars gave tangible results and is deemed to be satisfactory.
Management is confident that this consolidation will be sustained in the foreseeable future.
20.0%
30.0%
40.0%
50.0%
2015 2016 2017
Gasan Group Limited - Gearing Ratio
Source: Gasan Group Limited annual reports; Curmi&Partners; Due Diligence Reports
22 Financial Analysis Summary
5.5.2 Capital Investment
The Group is entering an investment phase with the major investment opportunities and developments
being described hereunder. The Group evaluates potential investment opportunities from time to time.
A number of these opportunities may be material in nature, but will only be undertaken if the Group is
satisfied that suitable funding arrangements are in place.
With regards to the capital projects currently in progress, the Group is currently working on the
Piazzetta Business Plaza. This project will include a combination of commercial and retail outlets.
The project is expected to be completed by Q4 2019. This project is being funded by a combination of
the Group’s own funds and bank financing.
The development of the Mriehel project (“The Quad”), which is a joint venture with the Tumas
Group, commenced in 2017. The Quad consists of 4 towers around a central piazza, which project
will assist in transforming Mriehel into an office and business hub. The project will include office
spaces, retail space, recreational facilities, a day care centre, and parking spaces catering for 1,400
vehicles. Management indicates that the plan of the joint venture is to sell one of the four towers,
whilst maintaining the rest for leasing purposes. The project is expected to be completed in 2021. The
Group is expecting to finance the project through available cash resources, internally generated funds
and bank financing.
The Group holds a 50% shareholding in Embassy Limited which through its subsidiaries owns the
Embassy Cinema Complex in Valletta and Main Street Complex in Paola. Management have
communicated their intention to convert the Embassy Cinema Complex into a four-star hotel, with
development aimed to start in January 2019. In 2018, Embassy Limited’s subsidiary Paola Complex
Limited changed its name to Main Street Complex plc and listed its entire share capital on the Malta
Stock Exchange. Following this initial public offering (“IPO”), Embassy Limited’s shareholding in
Main Street Complex plc now stands at 34%.
The Group continued to work on its investment in the energy sector through the relevant associate
company, Gem Holdings Limited, funded through a mix of bank borrowings and Group funds.
After several years of consolidation, the Group has entered an investment stage, with several
developments underway. Management have indicated that despite the increased level of investments
taking place in the coming years, gearing levels are expected to remain relatively low as part of the
planned investments will be financed through internal cash flows. The Group remains committed to
its objective of maintaining a healthy financial position that will allow it to comfortably service its
debt obligations through the various business cycles.
Financial Analysis Summary 23
6. COMPARABLES
The table below compares historical interest coverage ratios of the Issuer to those of other finance
companies which have debt instruments issued on the local capital markets. It is relevant to note that
there are considerable variances between the industries in which these corporate groups operate.
Additionally, there may be other differences that could include the capital structure of the finance
vehicle and characteristics of the specific debt instrument.
However, the below comparison could be considered a useful indication of the relative financial
performance and debt servicing capability of the Issuer.
On this basis, the Issuer’s historic cover ratio, in addition to the forecasted and projected indicators
referred to in previous sections, demonstrate a healthy position.
Comparables - Finance Companies Listed on MSE 2016 2017
Interest Coverage Ratios Actual Actual
Gasan Finance plc 2.5x 2.6x
Dizz Finance plc 2.0x 1.4x
United Finance plc 1.4x 1.4x
AX Investments plc 1.2x 1.2x
Corinthia Finance plc 1.0x 1.0x
Eden Finance plc 1.0x 1.0x
Tumas Investments plc 1.0x 1.0x
Source: Annual Reports; Curmi & Partners Ltd
24 Financial Analysis Summary
7. GLOSSARY
Non-current assets Non-current asset are long-term investments, which full value will not be
realised within the accounting year.
Current assets Current assets are all assets that are realizable within one year from the
statement of financial position date. Such amounts include trade
receivables, inventory, cash and bank balances.
Current liabilities Current liabilities are liabilities payable within a period of one year from
the statement of financial position date, and include trade payables and
short-term borrowings.
Non-current liabilities Long-term financial obligations or borrowings that are not due within the
present accounting year. Non-current liabilities include long-term
borrowings, bonds and long term lease obligations.
Total Equity Total equity includes share capital, reserves, retained earnings and
minority interests. It relates to the capital and reserves that are
attributable to owners of the company.
Cash flow from operating
activities
Cash flow from operating activities illustrates the cash-generating
abilities of a company's core activities, and includes cash inflows and
outflows that are related to operating activities.
Cash flow from investing
activities
Cash flows from investing activities reflect the change in cash position
resulting from investments and divestments.
Cash flow from financing
activities
Cash flows from financing activities shows the cash inflows and outflows
related to financing transactions with providers of funding, owners and
the creditors.
Free Cash Flow A measure of the ability to generate the cash flow necessary to maintain
operations. It is the balance after all cash flows for operating activities,
fixed asset net investments, working-capital expenditures. The definition
of free cash flow may vary; for this purpose it was based on Ebitda
adjusting for net investments, working capital and tax.
EBITDA Earnings before interest, tax, depreciation and amortization (EBITDA) is
a measure of operating profitability. It excludes depreciation and
Financial Analysis Summary 25
amortization, and is viewed as measure of a company's core profitability
and cash generating ability.
Financial Ratios
Current ratio The current ratio measures the ability to pay short term debts over the
next 12 months. It compares a company’s current assets to its current
liabilities.
Quick ratio Similarly to current ratio the quick ratio measures a company’s ability to
meet its short-term obligations with its most liquid assets. It excludes
inventories from current assets.
Gearing or leverage ratio The gearing or leverage ratio indicates the relative proportion of
borrowings and equity used to finance a company’s assets. It is estimated
by dividing total borrowings by total borrowings plus total equity, or as
the ratio of total borrowings to total equity.
Interest Coverage ratio Interest coverage ratio is generally calculated by dividing a company’s
EBITDA, or EBIT (operating profit) of one period by the company’s
interest expense of the same period. It measures the ability of the
borrower to service the finance costs related to borrowings.
Net Debt to EBITDA This ratio compares financial borrowings and EBITDA as a metric for
estimating debt sustainability, financial health and liquidity position of an
entity. It compares the financial obligations to the actual cash profits.
Gross Profit Margin Gross profit margin is the ratio of gross profit to revenue. It is the
percentage by which gross profits exceed cost of sales, and is a measure
of profitability at the most fundamental level.
Operating Profit Margin Operating margin is a measure of profitability that measures the
proportion of revenue that is left over after paying for all costs of
production incurred in ordinary operations.
EBITDA Margin Similarly to operating margin, EBITDA margin is a measure of
profitability that measures the proportion of revenue that is left over after
paying for all costs of production incurred in ordinary operations.
Net Profit Margin Net profit margin is the ratio of profit for the period to revenues, and is a
26 Financial Analysis Summary
measure of how much of revenues is converted into bottom line profits.
Return on Assets (ROA) Return on assets is the ratio of profit for the period or operating profit to
average total assets for the period. It measures efficiency in using its
assets to generate income.
Return on Capital
Employed (ROCE)
Similarly to ROA, this ratio measures efficiency in generating income but
takes into consideration the sources of financing. Profit for the period or
operating profit is divided by the capital employed (fixed assets plus
working capital or total assets less current liabilities)
Return on Equity Measures the profitability in terms of how much profit is generated in
relation to owners’ investment.